Please explain 401k?

Discussion in 'Questions From New Drivers' started by Travelworld2067, Aug 12, 2018.

  1. Travelworld2067

    Travelworld2067 Light Load Member

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    Company says they match 100% of the first 3% and 75% of 1% for total of 4%. So say i make 70k a year and plan on contributing 8% of my income. Thats anout 107 a week im contributing. So what will the company contribute 4% of my 107 which is anout 4 dollars a week or do theyaych the first 3% which would be 40 dollars plus the 75% of 1 percent which is anout 10 dollars. So id contribute 107 dollars and theyd contribute 50 dollars meaning total would be 157 dollars a week towards 401k is that how that works? Is that a decent 401k plan? Im only in my mid 20s.. i recon 157 dollara a week for 30 years plus a decent return id be well off right?
     
  2. dptrucker

    dptrucker Road Train Member

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    It's what you put in that they match.
    Good plan if you don't take out early. As cashing put. Like I did. With taxes and penalty I lost almost 50 percent.
     
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  3. Travelworld2067

    Travelworld2067 Light Load Member

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    U lost money for taking it out sooner. My company has no vesting period would that mean id keep all of it right?
     
  4. Chinatown

    Chinatown Road Train Member

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    That's a pretty good 401K plan.
     
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  5. buddyd157

    buddyd157 Road Train Member

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    if they have no vesting, and you with draw early, you lose what they put in. once a 401 is vested, you get all that money.

    but you will pay a penalty if you do not put the money back, at tax time.

    if someone wants to with draw money, best to just have a simple interest savings account.

    also frankly, i'd not want a 401 plan, i can never trust any company from going out of business. then there is even NO guarantee they will continue to contribute to the plan, they can stop at any time..(if they stay in business, maybe file bankruptcy, ) the money will be safe in the account, but a new employer may not even have a retirement plan.

    i have a retirement plan on my own with my financial planner/accountant.
     
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  6. x1Heavy

    x1Heavy Road Train Member

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    What you are trying to do is capture the maximum employer contribution matching funds.

    Your employer contributes a certain percentage. The 401k is a fund that is holding you and your employer's contributions for a period of time until fully vested 100%. The length of time you must be with that employer until 100% vested will be in your policy HR handbook.

    Once fully vested at 100% you can withdraw the 401k at any time.

    Just two problems.

    If you withdraw that 401K money before your retirement age (I think 62...) you automatically have to pay 10% that year directly to uncle sam the value of the entire fund as a early withdrawal penalty tax.

    Second problem.

    401k's is NOT all your money right now. They convert it to a 7 or 8 year annuity to pay out over 7 years time. You get a small check of a portion of it until it's all paid to you. That is included as part of your income taxes as proceeds.

    We held a 401k for a couple years with the state government working for them. We did get the 100% match, but ultimately lost over 10% in taxes (Uncle Sam made out like a bandit...) and it took us 7 years to get the bulk of it cleaned out and the 8th to sweep the crumbs with a final 60 dollar check or something.

    The reason is we were going through cancer and no way can expect to make it to retirement age. Might as well cash it in, eat the penalty and annuity payouts and be done with it.

    Did we make any money? Yes and no. In the end your dollar went in and your .92 cents came back 8 years later. Uncle Sam sure did as we watched the annual taxes go out.

    This is not a attack on 401K.

    It does not move money very well when you decide you want all of it now. You wont get all of it now. It will be over a period of years paying until it's all paid out over 7 years.

    You have a whole life time. Consider that 401k funding goes to wall street banks. And there they sit and are managed. Lots of money flow into them from around the USA. At some point people hit retirement age and boom cash out. They need a whole lot of money for that every year.

    Your 157 a week for 30 years comes out to a total of 1560 Weeks paid.

    The total you will see going into that fund will be about... $244920.

    If you only saved 100 dollars a week yourself that will only be 156000 in that savings.

    Interest in regular banking now is really bad. less than 1% is paid to regular checking or savings. I remember when I was a child during the bad old days of the 70's we earned 25% on certificates of deposit over 15 years. I pointed out one particular bank by name offering that. That bank failed 7 years later. IF... let's say IF.. my pa went ahead and sunk that money into the 25% cd hoping for a nice payout 15 years later, the bank failed at 7 years into the future, making Pa a creditor to be paid against the FDIC Insurance (Which itself is broke against approximately 7200 banks under it's coverage in the USA at the present time) Excluding credit unions which is under a similar insurance as their own group similar to FDIC. PA would have lost it all when the bank failed.

    The 3 to 4or 8% contributions would rely on your employer remaining in business 30 years. That's a stretch. You really cannot depend on a company working for a living to still be in existence 30 years. If I looked at my own trucking employment history from the late 80's to 2001, there is about half of employers who went out of business so completely and utterly out of existence. There is nothing to call or get money from. They are GONE. Poof. Closed.

    The United States will probably be around 30 years from now if they are a employer and contributing to your 401k or some such. Same with the States more or less, for as long there is a United States. If a State was your employer. But private sector and trucking companies? ERM... too risky.

    These are general thoughts.

    Finally but not last. Cost of living. It's rising at a YoY rate of about 3% against the CPI (Customer price index.) that gasoline you pay now at 3.00 a gallon will probably be around god only knows how much at 3% increases in pricing. 30 years down the road.

    In short inflation. That's one reason why as a child with a nickel I could buy a hershey bar now I have to carry a dollar plus 10% sales tax to buy a hershey bar in my 50's

    Your 244,000 hard earned all your life into the future might amount to a hill of beans then.
     
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  7. Chinatown

    Chinatown Road Train Member

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    The 401K I had, I put zero money in the company stock because I didn't trust the company. I put majority of my money in Overseas Asian Funds and made a killing. The company was always pressuring us to invest in the company, but I refused. Finally the company went bankrupt and I lost zero money, but one of my friends lost around $250K.
    Fidelity was the administrator of the 401K and did a good job. I was advised years ago to never invest in a 401K that the company you work for administers.
     
  8. Farmerbob1

    Farmerbob1 Heavy Load Member

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    The wording here is important.

    If a company matches 100% of your first 3% then 75% of each percent above 3% up to 7% (3 + 4) then if you put 7% of your income into a 401k, the company will match that with 6%.

    So, if you make 1000 per week, and put 7% in your 401k, you will get:

    1) Taxed on 930 dollars per week.
    2) 70 dollars of your own money in 401k.
    3) 60 dollars of company money in 401k.

    When you leave the company or withdraw the money early, you can pay heavy tax penalties, and lose unvested company funds.

    Understanding how your company matching funds become yours through vesting is critically important. Some companies set up their programs so that very few employees ever get their matching funds.
     
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  9. Travelworld2067

    Travelworld2067 Light Load Member

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    My company have no vesting period
     
  10. Travelworld2067

    Travelworld2067 Light Load Member

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    From my understanding no vesting period means if i wothdrawal sooner i keep the companies contributions
     
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